A forward guidance indicator for the South African Reserve Bank : implementing a text analysis algorithm

Erasmus, Ruan (2019-12)

Thesis (MCom)--Stellenbosch University, 2019.

Thesis

ENGLISH SUMMARY : The growing prevalence of forward guidance, in addition to central banks' efforts to improve and structure its use, has spawned growing interest among market participants and academics. Several scholars have endeavoured to develop quantitative tools to measure, or express on a numerical scale, qualitative forward guidance of central banks. In the context of South Africa, such studies are extremely scant. The expansion of central bank communications and technological advances has given rise to an area of research that analyses the words and phrases used by central banks, using semantic-modelling and other text-mining techniques. Using these techniques, we construct a novel forward guidance indicator (FGI) for the South African Reserve Bank (SARB). Specifically, we apply text-mining and text-analysis techniques to monetary policy committee (MPC) statements to generate an index measuring the stance of monetary policy. Using a series of applications, we establish that our FGis represent a useful tool to explain and predict future changes in the repo rate. Furthermore, our results indicate that our FGis are primarily driven by inflation expectations.

AFRIKAANSE OPSOMMING : Die toonemende voorkoms van vooruitleiding, tesame met pogings van sentrale banke om dit te verbeter en die gebruik daarvan te struktureer, het ‘n groeiende belangstelling by markdeelnemers en akademici gewek. Verskeie geleerdes het probeer om kwantitatiewe instrumente te ontwikkel om kwalitatiewe vooruitleiding van sentrale banke te meet of op ‘n numeriese skaal uit te druk. In die konteks van Suid-Afrika is die studies uiters skaars. Die uitbreiding van sentrale bank kommunikasie en tegnologiese vooruitgang het gelei tot 'n navorsingsarea wat die woorde en frases wat deur die sentrale banke gebruik word, ontleed met behulp van semantiese modellering en ander ontginningstegnieke. Deur hierdie tegnieke te gebruik, stel ons ‘n nuwe vooruitleiding-indikator (FGI) vir die Suid-Afrikaanse Reserwebank (SARB) op. Ons pas spesifiek tegnieke vir ontginning van teks en teksanalise toe op die verklarings van die monetere beleidskomitee (MP C) om 'n indeks te genereer wat die standpunt van monetere beleid meet. Deur gebruik te maak van ‘n reeks toepassings, bepaal ons dat ons FGI's 'n nuttige instrument is om toekomstige veranderinge in die repokoers te verduidelik en te voorspel. Verder dui ons resultate daarop dat ons FGI's hoofsaaklik gedryf word deur inflasieverwagtinge.

Please refer to this item in SUNScholar by using the following persistent URL: http://hdl.handle.net/10019.1/107163
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